JoAnn, 64 years old, worked for ABC Company for 30 years. During that time, she

Question

JoAnn, 64 years old, worked for ABC Company for 30 years. During that time, she made annual contributions to her 401(k). Each of her contributions were excluded from her taxable income. JoAnn's retirement account was $1,000,000 when she retired. $300,000 was from her contributions and the remaining $700,000 was from growth in the value of the plan's investment holdings. JoAnn retired in 2015 and has begun withdrawing money from the account.

What percentage of her 2015 withdrawals must JoAnn treat as ordinary income?

100%

70%

30%

0%

100%

70%

30%

0%

Explanation / Answer

100% of the withdrawal amount is treated as ordinary income for taxation.

For traditional plans you will owe income tax on all your withdrawals - both the money you contributed and the gains on your contributions. Remember: Money you withdraw from a defined contribution plan is always taxed at your income tax rate at the time you withdraw it.

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